Question by songdongqingdao: Explain the difference between how the stock dividend and how coupon payments is treated in binomial pricing.?
The fundamental formula for binomial pricing is identical between stock option and bond option. However, how to treat the dividend and coupon payments are different.
Explain the difference between the two.
Answer by ingameswetrust
As I understood your question you need a good book on pricing derivatives.
Hull , John – Options, Futures and Other Derivative Securities (5nd Ed.)
Since direct links are not welcome here, you should open www.rapidshared.org -> choose e-books directory -> search for ‘derivatives’ -> get the direct link and spent couple of minutes reading the demanded chapters.
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